There are many variations of self-management. In some variants, all the worker-members manage the enterprise directly through assemblies; in other forms, workers exercise management functions indirectly through the election of specialist managers. Self-management may include worker supervision and oversight of an organization by elected bodies, the election of specialized managers, or self-directed management without any specialized managers as such.[2] The goals of self-management are to improve performance by granting workers greater autonomy in their day-to-day operations, boosting morale, reducing alienation, and when paired with employee ownership, eliminating exploitation.[3]

An enterprise that is self-managed is referred to as a labour-managed firm. Self-management refers to control rights within a productive organization, being distinct from the questions of ownership and what economic system the organization operates under.[4] Self-management of an organization may coincide with employee ownership of that organization, but self-management can also exist in the context of organizations under public ownership, and to a limited extent within private companies in the form of co-determination and worker representation on the board of directors.

An economic system consisting of self-managed enterprises is sometimes referred to as a participatory economy, self-managed economy or cooperative economy. This economic model is a major version of market socialism and decentralized planned economy, stemming from the notion that people should be able to participate in making the decisions that affect their well-being. The major proponents of self-managed market socialism in the 20th century include the economists Benjamin Ward, Jaroslav Vanek and Branko Horvat.[5] The Ward-Vanek model of self-management involves the diffusion of entrepreneurial roles amongst all the partners of the enterprise.

Branko Horvat notes that participation is not simply more desirable but also more economically viable than traditional hierarchical and authoritarian management as demonstrated by econometric measurements, which indicate an increase in efficiency with greater participation in decision-making. According to Horvat, these developments are moving the world toward a self-governing socialistic mode of organization.[6]

In the economic theory of self-management, workers are no longer employees but partners in the administration of their enterprise. Management theories in favor of greater self-management and self-directed activity cite the importance of autonomy for productivity in the firm, and economists in favor of self-management argue that cooperatives are more efficient than centrally-managed firms because every worker receives a portion of the profit, thereby directly tying their productivity to their level of compensation.

The theory of the labor manager firm explains the behavior, performance and nature of self-managed organizational forms. Although self-managed (or labor-managed) firms can coincide with worker ownership (employee ownership), the two are distinct concepts, and one need not imply the other. According to traditional neoclassical economic theory, in a competitive market economy, ownership of capital assets by labor (the workforce of a given firm) should have no significant impact on firm performance.[7]

The classical liberal philosopher John Stuart Mill believed that worker-run and owned cooperatives would eventually displace traditional capitalist (capital-managed) firms in the competitive market economy due to their superior efficiency and stronger incentive structure. While both Mill and Karl Marx thought that democratic worker management would be more efficient in the long run compared with hierarchical management, Marx was not hopeful about the prospects of labor-managed and owned firms as a means to displace traditional capitalist firms in the market economy.[8] In Western market economies, despite their advantages in efficiency, the labor-managed firm is comparatively rare.[9]

Benjamin Ward critiqued the labor managed firm's objective function. According to Ward, the labor-managed firm strives to maximize net income for all its members, as contrasted with the traditional capitalist firms' objective function of maximizing profit for external owners. The objective function of the labor managed firm creates an incentive to limit employment in order to boost the net income of the firm's existing members. An economy consisting of labor-managed firms would thus have a tendency to under-utilize labor and tend toward high rates of unemployment.

In the 19th century, the idea of a self-managed economy was first fully articulated by the anarchist philosopher and economist Pierre-Joseph Proudhon.[10] This economic model was called mutualism to highlight the mutual relationship among individuals in this system (in contrast to the "parasitism" of capitalist society) and involved cooperatives operating in a free-market economy.

The classical liberal philosopher John Stuart Mill argued worker-run cooperatives would eventually displace traditional capitalist (capital-managed) firms in the competitive market economy due to their superior efficiency.[8]

The Soviet-type economic model as practiced in the former Soviet Union and Eastern bloc is criticized by socialists for its lack of widespread self-management and management input on the part of workers in economic institutions. However, according to both the Bolshevik view and Marx's own perspective, a full transformation of the work process can only occur after technical progress has eliminated dreary and repetitive work - a state of affairs that had not yet been achieved even in the advanced Western economies.[12]

In his book Drive: The Surprising Truth About What Motivates Us, Daniel H. Pink argues on the basis of empirical evidence that self-management/self-directed processes, mastery, worker autonomy and purpose (defined as intrinsic rewards) are much more effective incentives than monetary gain (extrinsic rewards). According to Pink, for the vast majority of work in the 21st century, self-management and related intrinsic incentives are far more crucial than outdated notions of hierarchical management and an over-reliance on monetary compensation as reward.

Worker self-management became a primary component of some trade union organizations, in particular revolutionary syndicalism which was introduced in late 19th century France, and guild socialism in early 20th century Britain, although both movements collapsed in the early 1920s. French trade-union CFDT (Confédération Française Démocratique du Travail) included worker self-management in its 1970 program, before later abandoning it. The philosophy of workers' self-management has been promoted by the Industrial Workers of the World (IWW) since its founding in the United States in 1905.

Critics of workers' self-management from the left such as Gilles Dauvé and Jacques Camatte do not admonish the model as reactionary, but simply as not progressive in the context of developed capitalism. Such critics suggest that capitalism is more than a relationship of management. Rather, they suggest capitalism should be considered as a social totality which workers' self-management in and of itself only perpetuates and does not challenge - despite its seemingly radical content and activity. This theory is used to explain why self-management in Yugoslavia never advanced beyond the confines of the larger state monopoly economy, or why many modern worker-owned facilities tend to return to hiring managers and accountants after only a few years of operation.

"But by taking the land and the industrial plants under their own management they have taken the first and most important step on the road to Socialism. Above all, they (the Workers' and peasants self-management) have proved that the workers, even without the capitalists, are able to carry on production and to do it better than a lot of profit-hungry entrepreneurs.

In the 1950s, at the height of the Cold War, Yugoslavia advocated what was officially called socialist self-management in distinction from the Eastern Bloc countries, all of which practiced central planning and centralized management of their economies. The economy of Yugoslavia was organized according to the theories of Tito and – more directly – Edvard Kardelj. Croatian scientist Branko Horvat also made a significant contribution to the theory of workers' self-management (radnicko samoupravljanje) as practiced in Yugoslavia. With the exception of a recession in the mid-1960s, the country's economy prospered under Titoist Socialism. Unemployment was low, the education level of the work force steadily increased. The life expectancy (which was about 72 years) and living standards of Yugoslav citizens was nearly equal to the life expectancy and living standards of citizens of Western capitalist countries such as Portugal. Due to Yugoslavia's neutrality and its leading role in the Non-Aligned Movement, Yugoslav companies exported to both Western and Eastern markets. Yugoslav companies carried out construction of numerous major infrastructural and industrial projects in Africa, Europe and Asia.[15][16]

During the Great Depression, worker and utility cooperatives flourished to the point that more than half of U.S. farmers belonged to a cooperative. In general worker cooperatives and cooperative banking institutions were formed across the country and became a thriving alternative for workers and customers.[21][22] Now,[when?] due to the economic downturn and stagnation in the rustbelt, worker cooperatives such as the Evergreen Cooperatives have been formed in response, inspired by Mondragon.

In October 2005 the first Encuentro Latinoamericano de Empresas Recuperadas ("Latin American Encounter of Recovered Companies") took place in Caracas, Venezuela, with representatives of 263 such companies from different countries living through similar economical and social situations. The meeting had, as its main outcome, the Compromiso de Caracas (Caracas' Commitment); a vindicating text of the movement.

The Hotel Bauen in Buenos Aires, occupied and self-managed since 2003.

Poster for the Movimiento Nacional de Empresas Recuperadas (MNER), at a worker-recovered print shop, Chilavert Artes Gráficas in Buenos Aires

English-language discussions of this phenomenon may employ several different translations of the original Spanish expression other than recovered factory. For example, worker-recuperated enterprise, recuperated factory/business,worker-recovered factory/business, reclaimed factory, and worker-run factory have been noted. The phenomenon is also known as "autogestión," which comes from the French word for self-management (applied to factories, popular education systems, and other uses). Worker self-management may coincide with employee ownership.

Argentina's fábricas recuperadas movement, which emerged in response to Argentine's 2001 economic crisis,[23] is the current most significant workers' self-management phenomenon in the world. Workers took over control of the factories in which they had worked, commonly after bankruptcy, or after a factory occupation to circumvent a lockout.

Fábricas recuperadas means "reclaimed/recovered factories." The Spanish verb recuperar means not only "to get back", "to take back" or "to reclaim" but also "to put back into good condition". Although initially referring to industrial facilities, the term may also apply to businesses other than factories (e.g. Hotel Bauen in Buenos Aires).

Throughout the 1990s in Argentina's southern province of Neuquén, drastic economic and political events occurred where the citizens ultimately rose up. Although the first shift occurred in a single factory, bosses were progressively fired throughout the province so that by 2005 the workers of the province controlled most of the factories.

The movement emerged as a response to Argentine's 2001 economic crisis,[23] and about 200 Argentine companies were "recovered" by their workers and turned into co-operatives. Prominent examples include the Brukman factory, the Hotel Bauen and FaSinPat (formerly known as Zanon). As of 2005, about 15,000 Argentine workers run recovered factories.

The phenomenon of fabricas recuperadas ("recovered factories") is not new in Argentina. Rather, such social movements were completely dismantled during the so-called "Dirty War" in the 1970s. Thus, during Héctor Cámpora's first months of government (May–July 1973), a rather moderate and left-wing Peronist, approximately 600 social conflicts, strikes and factory occupations had taken place.[24]

Many recovered factories are run co-operatively and all workers receive the same wage. Important management decisions are taken democratically by an assembly of all workers, rather than by professional managers.

The proliferation of these "recoveries" has led to the formation of a recovered factory movement, which has ties to a diverse political network including socialists, Peronists, anarchists and communists. Organizationally, this includes two major federations of recovered factories, the larger Movimiento Nacional de Empresas Recuperadas (or National Movement of Recuperated Businesses, or MNER) on the left and the smaller National Movement of Recuperated Factories (MNFR)[25] on the right.[26] Some labor unions, unemployed protestors (known as piqueteros), traditional worker cooperatives and a range of political groups have also provided support for these take-overs. In March 2003, with the help of the MNER, former employees of the luxury Hotel Bauen occupied the building and took control of it.

One of the highest difficulties such a movement faces is its relation towards the classic economic system, as most classically managed firms refused,[verification needed] for various reasons (among which ideological hostility to the very principle of autogestión) to work and deal with recovered factories. Thus, isolated recovered factories find it easier to work together in building an alternative, more democratic economic system and thus manage to reach a critical size and power which enables it to negotiate with the ordinary capitalistic firms.

The movement led in 2011 to a new bankruptcy law that facilitates take over by the workers.[27] The legislation was signed into law by President Cristina Kirchner on June 29, 2011.[28]

^Steele, David (1992). From Marx to Mises: Post-Capitalist Society and the Challenge of Economic Calculation. Open Court Publishing Company. p. 323. ISBN978-0875484495. The proposal that all the workers in a workplace should be in charge of the management of that workplace has appeared in various forms throughout the history of socialism…among the labels attached to this form of organization are ‘self-management’, ‘labor management’, ‘workers’ control’, ‘worker control’, ‘industrial democracy’ and ‘producers’ co-operatives’.

^Steele, David (1992). From Marx to Mises: Post-Capitalist Society and the Challenge of Economic Calculation. Open Court Publishing Company. p. 323. ISBN978-0875484495. The self-management idea has many variants. All the workers may manage together directly, by means of an assembly, or indirectly by electing a supervisory board. They may manage in co-operation with a group of specialized managers or they may do without them.

^Prychito, David L. (July 31, 2002). Markets, Planning, and Democracy: Essays After the Collapse of Communism. Edward Elgar Pub. p. 71. ISBN978-1840645194. The labor-managed firm is a productive organization whose ultimate decision making rights rest in the workers of the firm...In this sense workers’ self-management – as a basic principle – is about establishing control rights within a productive organization, while it leaves open the issue of de jure ownership (that is, who enjoys legal title to the physical and financial assets of the firm) and the type of economic system in which the firm is operating.

^Horvat, Branko (1983). The Political Economy of Socialism: A Marxist Social Theory. M.E Sharpe Inc. p. 173. ISBN978-0873322560. Participation is not only more desirable, it is also economically more viable than traditional authoritarian management. Econometric measurements indicate that efficiency increases with participation...There is little doubt that the world is moving toward a socialist, self-governing society at an accelerated pace.

^ abWhere Did Mill Go Wrong?: Why the Capital-Managed Firm Rather than the Labor-Managed Enterprise Is the Predominant Organizational Form in Market Economies, by Schwartz, Justin. 2011. Ohio State Law Journal, vol. 73, no. 2, 2012: "Why, then, is the predominant form of industrial organization in market societies the traditional capital-owned and managed firm (the capitalist firm) rather than the labor-managed enterprise owned and managed by the workers (the cooperative)? This is exactly the opposite of the result predicted by John Stuart Mill over 150 years ago. He thought that such worker-run cooperative associations would eventually crowd capitalist firms out of the market because of their superior efficiency and other advantages for workers."

^Where Did Mill Go Wrong?: Why the Capital-Managed Firm Rather than the Labor-Managed Enterprise Is the Predominant Organizational Form in Market Economies, by Schwartz, Justin. 2011. Ohio State Law Journal, vol. 73, no. 2, 2012: "Mill was mistaken, and Marx correct, at least about the tendency for labor-managed firms to displace capital-managed firms in the ordinary operation of the market."

^O'Hara, Phillip (September 2003). Encyclopedia of Political Economy, Volume 2. Routledge. p. 836. ISBN0-415-24187-1. it influenced Marx to champion the ideas of a "free association of producers" and of self-management replacing the centralized state.

^Ellman, Michael (1989). Socialist Planning. Cambridge University Press. p. 312. ISBN0-521-35866-3. In general, it seems reasonable to say that the state socialist countries have made no progress whatsoever towards organizing the labour process so as to end the division between the scientist and the process workers. This is scarcely surprising, both in view of the Bolshevik attitude toward Taylorism and in view of Marx’s own thesis that a society in which the labour process has been transformed would be one in which technical progress had eliminated dreary, repetitive, work. Such a state of affairs has not yet been reached in even the most advanced countries.